Dealer Competitive Strategy

By Richard Stewart

Vol. 84 No. 7 July 2018

It is no secret that equipment dealers are competing in an increasingly complex environment. Pressures from original equipment manufacturers, customers and even new market entrants are stressing traditional operating paradigms. What does a dealer do to adapt to these market drivers, remain competitive, and improve financial performance? This question triggered an academic research project to determine if, in the current dealership environment, one class of strategy is more effective than another. This is an introduction to that research.

The research is being conducted under the watchful eye of the University of Denver and in partnership with AED. Members of AED were surveyed anonymously to collect data on the prevalence of specific market drivers, what strategy and business model adaptations dealers have recently made, and the financial performance associated with these adaptations. The outcome of the research identifies, by revenue category, the effectiveness of both customer-oriented and product-oriented strategies.
Strategic Autonomy

Compared to other industry sectors, equipment dealers are somewhat landlocked in their available strategic options. Figure X sets out a spectrum of strategic autonomy. The most autonomy is afforded to those not beholden to an OEM, and the least autonomy is afforded to company stores. Dealers are not franchisees (a virtual company store), so classic components of strategy such as geography, product offerings, and pricing are heavily influenced, if not controlled, by the dealer’s OEM.

With limited strategic autonomy, dealers are, in a very broad sense, left to compete based on cost or differentiation (see figure Y). Competing predominantly as a low-cost provider requires a product-centric strategy and business model that delivers efficiency and standardized offerings.

Competing as a differentiator requires a customer-centric strategy and business model that delivers deep relationships and customizable offerings. Overall, the research is persuasive that customer-centricity is more effective than product-centricity, but not in all revenue categories. The research also identifies that the greater the revenue category, the more dominant customer-centricity becomes.

Market Drivers and Adaptations
Understanding the components of current market drivers is the first step in adapting strategy and business models. The research identifies the significant OEM and customer market drivers that dealers are experiencing by revenue category. Additionally, those market drivers are segmented by centricity orientation. One interesting takeaway from this data is that product-centric dealers have greater sensitivity to current market drivers than do customer-centric dealers, likely signaling that product-centric dealers are stressed by the effectiveness of customer-centric strategies and business models.

The root value of the research is in its identification of those adaptations that dealers are making to their strategies and business models. It is one thing to understand market drivers and strategic options, and it is another to gain a view into specific changes dealers are making to their daily operations. The prevalence of these specific changes, their centricity orientation, and adoption rates by revenue category are each components of the research. Another interesting takeaway from the data is that customer-centric dealers are more aggressive in changing the way they do business than product-centric dealers are. This likely means that customer-centric dealers are seeing sustainable results from their changes.

What’s Next
Admittedly, this article is a bit of a teaser. The research was done for the benefit of AED and its members, and in due time the full results will be available to all AED members. But first, as promised, the results go to those dealers who completed the survey. That release will occur in August, with rollout to all members in the fall.

With the upcoming release of the AED Annual Cost of Doing Business Report and the corresponding release of this research, two powerful tools become available to dealers. These tools can serve as a solid foundation for your 2019 planning by helping you benchmark your dealership both operationally and strategically.